What makes the millennials tick?
30 December 2017
The market of the youth, by the youth and for the youth
The Chinese call them the generation that eats the old, the Spanish call them Ni-Ni not sold on the benefits of work or study and the Germans call them Generation Maybe so overwhelmed by a wealth of opportunities that they commit to none.
In the UK we have a much duller word to describe people born between the mid-1980s and 2000 – millennials.
Whatever their name the stereotype is stuck – unwilling to work hard, obsessed with their smartphones and less socially able than previous generations.
But according to Deloitte they will have a global net worth of $24million by 2020 and as such there is a need for asset managers to fully understand what makes them tick.
According to a 2015 study into millennials by Standard Life Investments they are looking for investments that reflect their social, economic and ethical concerns. Returns are still important but there is a greater focus on impact investing.
They are also, as a result of growing up during the financial crisis, distrustful of financial institutions with many preferring to take and share advice with peers online and more recently robo-advisers. They prefer cash-like investments rather than riskier higher return products.
Other studies state that they look for passive rather than active funds with recent Charles Schwab data stating that 56% of millennial investors have ETF’s as their investment of choice.
Asset Management firm Legg Mason also published a recent Global Investment Survey around Millennials. It found that their favourite products included fixed income, non-traditional investments and gold. For the next 12 months they saw most potential in domestic and international stocks as well as gold and precious metals.
Legg Mason discovered that a half of all UK millennials would like to do all their financial planning on a smartphone but that 40% wanted to take advice from a human rather than a robot.
“They don’t feel that they are participants in life as much as past generations did…”
Legg Mason believes that there is ample potential in the AM industry to produce apps to use behavioural finance to direct millennials into a higher risk return pay-off and greater international diversification.
Alex Barry, head of UK sales at Legg Mason, says the firm has done a lot of “grappling” on the subject of millennials. “They perhaps have a greater voice than previous generations and clearly with the rise of smartphones have different requirements and needs,” he states. “They have a great interest in ESG which we need to consider from a product perspective. On the issue of active and passive we have found that they are interested in paying for active management. That is not going to go away but we also need to engage with them more. We have to evolve our technology offerings.”
David Bird, head of proposition development, Life Sight at Willis Towers Watson, says this is part of creating products that reflect their lives and ambitions.
“This is a generation, including my son, who can’t get on to the housing ladder and still live with their parents. They have high student debts and really don’t feel they are participants in life as much as past generations did,” he says. “We need to personalise products rather than talk about UK equity or fixed -income because that doesn’t mean much to a millennial. They want to see a purpose behind their savings.”
Part of the answer could be asset managers using gamification techniques to encourage more interest and activity from millennials. “Take them on a journey using fun and play elements, show them the levers they can pull through their investments to get a better car or retirement,” he explains. “From an asset managers perspective, it can help encourage investment and improve customer retention.”